Federal Tax Court Denies Conservation Write-Off

The U.S. Tax Court ruled last month that an Alexandria, Va., real-estate company’s promise not to overdevelop land near George Washington’s Mount Vernon estate, and the company’s donation of $1.3-million to a local county, had no value as a conservation easement and could not be written off from the company’s taxes because it “did not protect open space or historically important land areas,” reports The Washington Post.

Tax specialists told the newspaper that the ruling appears to be the first time a court has thrown out a conservation-easement tax deduction and that it could have sweeping implications for the conservation movement and for wealthy investors.

Conservation easements were meant to be used to preserve open space and historical settings by limiting intrusive development. People and companies can donate the easements, essentially a promise to restrict land use, to nonprofit land trusts or to government agencies, which then guarantee that the public will benefit from the restrictions. The donor of the easement gets to take a tax deduction on the land’s market value.

The Internal Revenue Service is beginning to examine easement donations to determine possible abuses. Steven T. Miller, the agency’s commissioner for tax-exempt organizations, said the IRS is looking into more than 500 donations of easements.